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Apartment Inventory Upsurge on Horizon
Regular and frequent readers of this newsletter know that I don’t rely on any single economic indicator in decision-making … as presented in pieces published in July and October of this year.
In September, I dealt with 5 potential “headwinds” and concluded that for the balance of this year the economic outlook appears to be comfortably predictable … a position I continue to maintain.
Now there is evidence of the potential for a new headwind that may affect multi-family property investors and landlords.
Upswing in Apartment Inventory
Post-COVID apartment building starts circa 2022 were driven by ample construction financing, low interest rates and robust occupancy/rent fundamentals. While many of these apartment buildings are now occupied an expansion in new construction is now coming on the market.
In the face of the significant increase in available rental units, fortunately tenant demand is holding steady. In large measure, the lack of single family home affordability creates demand for rentals. Notably, the Richmond market has held up remarkably well when compared to national averages.
That said, what economic indicators may affect multi-family property investors? Certainly the growing inventory of apartments is a key factor as there will be “rent-wars” among competing landlords to attract and maintain quality renters. Additionally, wages and employment stats are key to support retention of desirable tenants and rent increases on existing units.
Wage Inflation Expectations
Post-pandemic wages increased steadily from 2020 through 2023. While still on the plus-side, the graph below shows monthly growth in wages has slowed in 2024:
- March: 4.3%
- June: 4.1%
- September: 3.8%
In contrast, monthly inflation rates in 2024 have followed suit in reductions as indicated on the following graph.
- March: 3.5%
- June: 3.0%
- September: 2.4%
U.S. Monthly Inflation Rates – September 2020 to September 2024
Notably, the inflation rate has not exceeded the rate of wage growth so far this year.
Months in 2024 | Wage Inflation Rates | Inflation Rates |
March | 4.3% | 3.5% |
June | 4.1% | 3.0% |
September | 3.8% | 2.4% |
This is good news for both renters and residential real estate landlords. However, there is a trend in the above stats that shows wage inflation slows in lock-step with inflation rates. While inflation has dropped precipitously, wages have actually eased more slowly. Perhaps as inflation further declines, wage inflation may continue to outstrip in real dollar purchasing power for some period of time … followed by reductions as inflation eases further.
So, in the likelihood of additional apartment availability, investors may want to consider steps to ensure retention and attraction of quality tenants in an increasingly competitive environment underscored by added supply and the potential for wage deflation, e.g., multi-year leases, added amenities, etc.
Employment Stats
Virginia continues to register 47 job candidates per 100 available jobs. That’s the good news. The less predictable news is how the unemployment rate may continue to creep “North”. The rate of increase has been minimal … we’ll see how it may be affected by the upcoming economy in the wake of a new Federal administration.
Source: Bureau of Labor Statistics
Another interesting trend to watch is the work-from-home trend. Stats indicate remote workers reached 23.0% of the workforce in Richmond in 2021, up from 5.8% in pre-pandemic 2019. In 2023, the Richmond rate maintained at 16.6% in 2023 … pretty much triple the 2019 rate. Remote work drove Richmond’s population increases post-COVID, and exceeded national averages since 2021. That suggests Richmond multi-family investors could be a net beneficiary of the remote work trends.
Takeaways
I never profess prophecy … always aspire to awareness. Based on the foregoing, I remain aware of the potential apartment supply glut, wage inflation/inflation relationship, and employment trends. Any and all may affect you and me as residential rental investors.
There will be others triggered by domestic and geopolitical developments. Be alert ... I intend to be!
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